What you must know about Cello World IPO?

Cello World Ltd is a popular Indian consumer product company. The company broadly operates in 3 verticals viz. writing instruments & stationery, molded furniture, and consumer housewares & related products. It has been in the consumer products business for more than 60 years and has become almost a household name for home needs. Cello World Ltd has a total of 13 manufacturing units located in 5 different locations in India. It is currently exploring setting up a glass manufacturing unit in Rajasthan. The company currently has around 15,841 stock-keeping units (SKU) across all product categories. Its core business complemented by a strong distribution team, established market positioning, de-risked product basket as well as a track record to boot.

Some of the popular product categories of Cello World Ltd include drinkware, dinnerware, lunch boxes, jars & containers, casseroles, bakeware, kitchen appliances, cookware, cleaning supplies and more. The company has a strong omni channel experiences with a combination of offline sales front and a very popular online sales model. The company also sells products on themes, with a popular theme being “Build your Kitchen,” wherein customers are encouraged to use the online interface of the company to build their kitchen stack; product by product with an overall budget in mind. Another popular theme is “Cello Kids,” where a complete array of needs of children are addressed. In addition, Cello also allows personalized manufacture of such products.

Since it is an offer for sale, there is no fresh funds coming into the company. It will just be a transfer of ownership in this case. The IPO of Cello World Ltd will be lead managed by Kotak Mahindra Capital, ICICI Securities, IIFL Securities, JM Financial and Motilal Oswal Investment Advisors acting as the Book Running Lead Manages (BRLM). Link Intime India Private Ltd will be the registrar to the IPO.

Highlights of the IPO issue of Cello World Ltd

Here are some of the key highlights to the public issue of Cello World IPO.

• The IPO of Cello world opens on 30th October 2023 and closes for subscription on 01st November 2023; both days inclusive. Cello World Ltd has a face value of ₹5 per share while the price band for the book building IPO has been set in the range of ₹617 to ₹648. The final price will be discovered within this band through the process of book building.
   
• The IPO of Cello World Ltd will be entirely an offer for sale, with no fresh issue component. It must be remembered that while the fresh issue is equity and EPS dilutive, the offer for sale (OFS) is generally capital neutral as it is just a transfer of shares from one set of owners to another. It does not impact the EPS in any way.
   
• The offer for sale (OFS) portion of the IPO comprises the sale of 2,93,20,987 shares (293.21 lakh shares approximately), which at the upper price band of ₹648 per share will translate into an offer for sale (OFS) size of ₹1,900 crore.
   
• The entire offer for sale (OFS is being made by the promoter group; spread across 6 promoter shareholders. These include Pradeep Ghisulal Rathod (₹300 crore), Pankaj Ghisulal Rathod (₹736 crore), Gaurav Pradeep Rathod (₹464 crore), Sangeeta Pradeep Rathod (₹200 crore), Babita Panka Rathod (₹100 crore), and Ruchi Gaurav Rathod (₹100 crore). Between them they account for the entire OFS of Rs1,900 crore.
   
• Since there is no fresh issue component in the IPO, the overall IPO size will comprise only of the OFS. Thus, the total IPO will also entail the sale of 2,93,20,987 shares (293.21 lakh shares approximately), which at the upper price band of ₹648 per share will translate into a total IPO issue size of ₹1,900 crore.

There are no fresh funds coming into the company and the entire offer for sale is by the promoter shareholders only.

Promoter holdings and investor quota allocation

The company was promoted by Pradeep Ghisulal Rathod, Pankaj Ghisulal Rathod, and Gaurav Pradeep Rathod. Currently the promoters hold 100.00% of the company, which will get diluted post the IPO to 91.8%. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors . The stock of Cello World Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

It must be noted here that the anchor allocation to anchor investors would be done one working day ahead of the opening of the IPO. Since the IPO opening date of 30th October 2023 is a Monday, the anchor allocation will happen on Friday, 27th October 2023. Such anchor quota will be carved out of the QIB allocation as shown above and the QIB public issue portion will be reduced to that extent.

Lot sizes for investing in the IPO of Cello World Ltd

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Cello World Ltd, the minimum lot size is 23 shares with upper band indicative value of ₹14,904. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Cello World Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Cello World Ltd IPO and how to apply?

The issue opens for subscription on 30th October 2023 and closes for subscription on 01st November 2023 (both days inclusive). The basis of allotment will be finalized on 06th November 2023 and the refunds will be initiated on 07h November 2023. In addition, the demat credits are expected to happen on 08th November 2023 and the stock will list on 09th November 2023 on the NSE and the BSE. Cello World Ltd offers a very unique combination. It has an established and tested business model; it is into an industry that is considered the future of retail growth. In addition, it has a pedigree of more than 60 years in a business, where persistent customer delight is the buzzword. Let us now turn to the more practical issue of how to apply for the IPO of Cello World Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes to invest are already covered previously in this report.

Financial highlights of Cello World Ltd

The table below captures the key financials of Cello World Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (All ₹ figures are in crores)

There are few key takeaways from the financials of Cello World Ltd which can be enumerated as under

1. The revenue growth and the profit growth have been relatively stable and healthy over the last 3 years and that could be an outcome of the stable and established business model of Cello World Ltd. With its strong focus on the omnichannel model, the scalability of the business improves substantially with minimal cost implications.
    
2. The profit margins and the return on equity are very impressive. PAT margins have been consistently above the 15% mark, which would be an important matrix when it comes to the valuations. Even the ROE at above 40% and the ROA at above 15% are consistently in the upper percentiles of the sector.
    
3. The company has maintained an impressive rate of sweating assets as is evident from the asset turnover ratio of above 1.00 in the last couple of years. This segment has long gestations and the ratio should improve going ahead as sales stabilize. That is critical as it is a key component in the ROE sustenance.

While pricing of the IPO does matter here, what is more critical is the eventual PAT margins that will sustain; and that looks quite promising based on last 3 years data. Let us quickly look at valuations. On the latest year EPS of ₹13.17 per share for FY23, the P/E ratio at the IPO issue price of ₹648 comes to a range of 46-50 times. That is the general norm for retail plays, especially with the strong growth and operating margins that this company has displayed in recent years. A lot will predicate on how the company manages the volumes and profits in a business that is increasingly seeing a bigger chunk of the incremental business coming via online and, more specifically, mobile app based channels. For investors with a longer perspective of 2-3 years and reasonable return expectations, the IPO of Cello World Ltd can be a good investment option.